Explainer: How Proposition 2 works and what ACA 20 would change

Carolyn Chu of the Legislative Analyst's Office walked the committee through how Proposition 2 currently operates: required annual deposits equal to 1.5% of general fund revenue plus an excess capital‑gains contribution when capital gains represent a high share of revenue; those amounts are split between the budget stabilization account and accelerated debt payments. The measure also requires a declaration of budget emergency and legislative approval for withdrawals from the BSA.

Under ACA 20, Chu said, the state would add an additional trigger informally described as "super excess capital gains," raise the statutory BSA threshold to 20% and extend required debt payments for an additional decade. She emphasized the mechanics include annual true‑ups to correct revenue estimates for the prior year and that the legislature retains discretion about precisely which debts to pay down with the additional funds. "The changes made under ACA 20 would build more reserves as well as require extra debt payments for an additional 10 years," she told the committee.

LAO and DOF witnesses also explained a technical interaction with the state appropriations (Gann) limit: excluding deposits from the SAL when they are made can create an incentive to set aside more in surge years because excluded spending reduces the base compared against the limit; withdrawals are treated differently. The LAO noted California still had substantial room under the SAL in the presented estimate, and emphasized that the SAL is only likely to bind in very strong revenue years.